Energy Fact & Opinion: European Commission Releases Sustainable Energy Security Strategy
February 19, 2016
Facts:
- On February 16, the European Commission released its proposed sustainable energy security strategy for the European Energy Union. The strategy takes the form of a number of recommendations and binding regulations for Energy Union member states that will have to be approved by the European Parliament and the European Council (made up of the leaders of European Union member states).
- One such regulation stipulates that the European Commission can review, approve, and amend intergovernmental natural gas supply agreements between member states and non-member states to ensure that they comply with European Union laws and regulations, and that they do not negatively affect other Member States’ gas supply security. According to the regulation, the Commission will review such agreements before they are signed to avoid the arduous task of renegotiating agreements found to violate European Union law. The Commission would also gain the authority to preemptively review gas supply contracts that give individual suppliers more than 40 percent market share in a single member state.
- The strategy also focuses on increasing security of energy supply through infrastructure improvements. To this end, it reiterates previous regulations that require that all cross-border gas interconnections be capable of reversing gas flows unless an interconnector’s owner applies for an exemption, and offers non-binding recommendations for improved building efficiency, encouraging renewables, and making use of waste heating and cooling.
- Finally, the strategy requires that member states task government or regulatory bodies to create regional cooperation mechanisms to assess gas supply risks and formulate supply disruption scenarios; to create contingency plans that include both policy- and market-based responses to interruptions that do not impair the functioning of national or EU-wide energy markets; to ensure that supply interruptions in individual member states do not cause interruptions in other states or in the European Union as a whole; and to designate “protected customers” including households, district heating, essential services, and a limited number of small and medium enterprises that would be prioritized in case of a major disruption.
- The European Commission argued that its legal authority in establishing the strategy’s binding regulations extends from Article 194 of the Treaty on the Functioning of the European Union, which “recognizes that a certain level of coordination, transparency and cooperation is necessary as regards EU Member States' policies on security of supply, to ensure that the energy market functions properly and that there is a secure supply of gas within the European Union.”
Opinion:
Release of this strategy paper comes at an interesting time for the European Union with concerns over the migration crisis and the possibility of a British exit from the Union. These proposals seek to expand the Commission’s authority in an area previously under the purview of member states (e.g., intergovernmental agreements and commercial contracts on gas supply).
Coming after COP21 in Paris and European climate targets favoring the use of renewable energy, the paper does confirm that the Commission sees natural gas as part of the transition to clean energy, as well as the increased need for imported gas as European production declines. This should give some comfort to Europe’s traditional gas suppliers, such as Russia, Norway, and Algeria, as well as to potential new suppliers, including liquefied natural gas (LNG) exporters from places like the United States, Australia, and east Africa, and also pipeline gas from the Caspian region and the Middle East. At the same time, the strategy paper reinforces previously stated goals of diversity of supply and emergency preparedness for each region of Europe and increased competition that would result from the free flow of gas across borders. It remains an open question whether the instruments the Commission hopes to use to enforce a common market in gas (or Energy Union), including EU-level regulations and financial assistance to build interconnector pipelines and new LNG receiving terminals, are sufficient for the task.
With support from member states, these proposals could go a long way toward breaking down resistance to forming a common gas market, which come mainly from European countries and their companies that treasure “special” relationships with certain traditional suppliers and existing business practices. Member states could actually use new EU regulations to alter the market behavior of incumbents. In contrast, Nord Stream II (an expansion of an undersea gas pipeline system from Russia to Germany) is a project sponsored by incumbents—Russia’s Gazprom and five companies from four different EU member states—to supply the gas Europe presumably wants to import while avoiding transit risks, primarily from Ukraine. How this project fits into the vision of a competitive gas market with diversified supply, as articulated in this strategy paper, and how the European Commission and Germany will approach Nord Stream II will be interesting to watch for observers on both sides of the Atlantic.
